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In the dark: A system of secrecy

January 2017 - Paul Bland and Dani Zylberberg

Many people don't know that they are subject to forced arbitration clauses—for products they buy every day, workplace disputes, and more. And the hidden nature of this system extends to the proceedings themselves, with the process and outcome kept secret from the general public.

A major facet of our judicial system is transparency—but secretive forced arbitration proceedings keep judgments and corporate wrongdoing hidden from public scrutiny.

An open and transparent court system has long been a pillar of our democracy, guaranteeing fair proceedings, discouraging “misconduct of participants,” and ensuring public support and acceptance of the “means used to achieve justice.”1

But forced arbitration is secretive and undermines our open court system. Arbitrations seldom generate meaningful opinions, the decisions are nonprecedential, and the public has no right to witness the proceeding because arbitrators may exclude nonparties.2 Forced arbitration also sharply limits public and media access to the case documents filed with the arbitrators.

If it weren’t bad enough that arbitration proceedings generally take place under a shroud of secrecy, some corporations also have tacked confidentiality provisions into their forced arbitration agreements to hide even the most extreme corporate wrongdoing.

This general lack of transparency has allowed arbitrators to make decisions with little accountability or oversight and has stymied the open development of law. It advantages so-called “repeat players”—defendants who face a larger volume of recurrent claims and who know how a given arbitrator has ruled in past cases. This information is invaluable to parties in pursuing a case, but it is often unavailable to consumers or workers who have never been involved in arbitration before.

Although some states have passed laws requiring arbitrators and their organizations to disclose certain information about arbitrations involving consumers, this limited information pales in comparison to what would have been available to litigants had these cases been filed in court.3

But forced arbitration is more than just a roadblock that limits public access to proceedings: It allows the powerful to hide wrongdoing through procedural restrictions that would not fly in a ­courtroom. For example, the scope of ­discovery is generally narrower in arbitration—and when one party has a monopoly on any relevant information, the public is more easily kept in the dark.

Most troubling, a majority of forced arbitration clauses prohibit consumers and workers from bringing class actions. These class action bans have the practical effect of making it impossible for many individuals to pursue their legal rights and result in many cases merely disappearing.

A class action ban helped keep Wells Fargo’s systemic misconduct—opening fraudulent accounts in customers’ names—out of the spotlight for years after consumer lawyers first identified the problem.

Customers tried suing Wells Fargo as early as 2013 to hold the bank accountable for its employees’ illicit acts, but they were forced into arbitration because of broadly worded arbitration clauses.4

These provisions also banned ­classwide resolution of any claims against the bank, making it all but impossible for individuals to muster the resources to successfully pursue their claims.5 Without a viable route to litigate these claims, Wells Fargo’s fraud and deception went unchecked for years, allowing the bank to cheat hundreds of thousands of additional consumers.

The problem is even worse when corporations include gag orders with their forced arbitration provisions that ban consumers or workers from discussing arbitration results or any facts relating to the underlying dispute (no matter how illegal). A judge would never blindly approve a gag order of such breadth in a courtroom, but forced arbitration circumvents presumptions favoring an open court system. When a corporation imposes a confidentiality provision in a forced arbitration agreement, the U.S. Supreme Court has suggested that at least some secrecy in an arbitral proceeding “honor[s] parties’ expectations” because “arbitration is a matter of contract.”6

Some jurisdictions have held that these provisions are unconscionable and unenforceable because they are “wholly one-sided, protecting only the company that prepared the contract with no reciprocal benefit to the consumers.”7

But others disagree and enforce these gag orders.8 In these latter jurisdictions, an individual could be barred from speaking about company wrongdoing altogether. Roger Ailes, the former chief of Fox News, attempted to enforce such a gag order that would have prevented Fox News anchor Gretchen Carlson from disclosing anything in her sexual harassment lawsuit, including “all relevant allegations and events leading up to the arbitration.”9

The secrecy of forced arbitration—both the nontransparency that is inherent in all arbitration and the sweeping gag orders that some clauses contain—illustrates why we need to completely ban this unfair system. Forced arbitration undermines the core values of our civil justice system and poses a serious threat to many Americans.